REMI evaluated the economic impacts of extending and enhancing a federal tax incentive to encourage energy efficiency in commercial buildings.
We estimated the effects on jobs, personal income, and gross domestic product from changes to the Section 179D deduction. The American Institute of Architects, which co-funded the study, announced the results this week.
Please feel free to check out the full study by clicking here.
When state and local policy makers want to know the impact of economic development, they can find answers through dynamic economic modeling. Through simulations, analysts can simulate the effects of a proposed development over time.
W.E. Upjohn Institute for Employment Research prepared a study using the REMI model to evaluate the potential impact of commercial development in downtown Kalamazoo, MI. A private firm is planning to redevelop a building into a franchised hotel and adjacent buildings into retail, residential, and office spaces.
You can check out the full report by clicking here.
With the Affordable Care Act likely to remain largely intact for the foreseeable future, state policy makers are reconsidering their options under former President Obama’s signature law.Among the issues policy makers are revisiting is the question of whether or not to expand Medicaid. Under the ACA, states can extend health care insurance through an expansion of Medicaid, with the federal government covering most of the cost. The federal contribution currently covers 95 percent of the additional cost. However, the federal share will phase down to 90 percent by 2020.
Most states adopted Medicaid expansion, but 19 states opted to forego the federal funding. Now, several of those 19 states are revisiting their decision.
Among the states considering change is Oklahoma, which originally chose not to expand Medicaid in 2012. This year, REMI collaborated with George Washington University to analyze the economic effects of Oklahoma accepting federal funds for a new private insurance plan, and to prepare a report for the State Chamber of Oklahoma Research Foundation.
We presented the research via webinar, which you can access by clicking here.
Since House Republicans have been unable to agree on a replacement for the current law, state officials may decide it’s worth it to accept the funds and extend health insurance to more low-income residents. Critics argue the long-term prospects for ACA remain uncertain, and accepting the expansion now could in the long run impose fiscal burdens on states.
How many states will end up expanding Medicaid remains to be seen, but policy makers and advocates in several states have shown an interest.
Kansas’ legislature approved Medicaid expansion, though it failed to override Gov. Sam Brownback’s veto of the measure. A group of Republican state lawmakers in North Carolina also want to expand Medicaid. In Maine, supporters of expansion have collected enough signatures for a ballot initiative asking voters to approve the plan.
Clear analysis can help policy makers choose a course of action.
At REMI, we have analyzed the potential economic impacts of expanded Medicaid, looking at implications for revenue, employment and output. Prior to the Oklahoma study, we have prepared reports in North Carolina, Kansas, and Iowa.
We contributed to a study that influenced the debate in Ohio, a report that was described as a “major watershed moment” in a New York Times article. Gov. John Kasich successfully fought for expansion in the Buckeye State.
With the future of federal health care policy uncertain, states are in the driving seat. It’s a good time for clear objective analysis of their choices.
The border adjustment tax, or BAT, is part of a larger tax reform plan proposed by House Republicans. With Washington turning its focus to tax reform, we are likely to be talking more about BAT.
Tax policy changes are often controversial because they can produce “winners” and “losers”. If BAT is adopted, businesses would no longer be able to deduct imported goods as business expenses. At the same time, businesses would not have to pay taxes on the revenue they earn from goods sold overseas.
As a result, the border adjustment would reduce the cost of exporting, while increasing the cost of importing. Companies that export – agriculture, tech, and manufacturing – stand to benefit, while sectors that rely on imports – from retailers to oil refiners – could be hurt by the change.
Major retailers – such as Walmart, Target, and Best Buy – have lined up against the change. The National Retail Federation aired an ad that parodies infomercials, with a pitch man telling viewers, “You need an everything tax like the BAT tax!”
On the other side, a pro-BAT group called American Made Coalition has launched its own ad campaign to promote the reform. The ad flashes text that reads: “Stop favoring foreign-made imports over American-made goods. Support tax reform and create 1.7 million new American jobs.”
The coalition, which is includes major corporations such as Boeing, Caterpillar, GE, and Pfizer, is pitching the proposal as a way to boost manufacturing, create jobs, and discourage companies from shifting operations overseas.
Ultimately, the effects of border adjustments depend on other components of tax reform, such the possibility of a lower corporate tax rate. The impact could also depend on the overall economy. If we’re at full employment, then then job gains in one sector must be offset by job losses elsewhere.
At the moment, however, some industries and regions may not be at full employment. While major cities and the coastal regions are at full employment, regions in the middle of the country have not fully recovered. Discouraged workers have dropped out of the workforce, and could be drawn back into the labor market with additional growth. Tax reform that benefits manufacturing could help boost employment, and reverse this “hysteresis” effect.
Another vital question in the border adjustment debate is the exchange rate. If the value of the dollar increases, it will offset the import cost increase, as well as the export cost decrease.
The primary effect of the border adjustment may then be in the shift away from income-based taxation towards a consumption-based taxation. As with other tax proposals, BAT’s merits rest on fundamental questions about what is the right way to approach taxation.
Fred Treyz, Ph.D., REMI’s CEO and Chief Economist, gave a presentation on border adjustments and tax reform as a guest on a National Association of Business Economics webinar. You can view the slides from his presentation by clicking here.
The missing worker has been a persistent mystery shadowing the economic recovery – evidence of labor market hysteresis induced by the Great Recession.
Hysteresis occurs when many workers are unemployed for a long time, experience a decline in skills, and drift away from the workforce. These frustrated workers are central to President-elect Donald J. Trump’s economic message, and key to understanding what might happen under his stimulus plan.
Federal Reserve Chairwoman Janet Yellen addressed the question of prolonged unemployment and lingering effects during a conference that the Boston Fed held in October.
“If we assume that hysteresis is in fact present to some degree after deep recessions, the natural next question is to ask whether it might be possible to reverse these adverse supply-side effects by temporarily running a ‘high-pressure economy’, with robust aggregate demand and a tight labor market,” Yellen said.
As a presidential candidate, Trump pointed to people who dropped out of the workforce.
“There are now 94.3 million Americans outside of the labor force. It was 80.5 million when President Obama took office. An increase of 14 million people,” he said in an August economic speech.
“We have the lowest labor force participation rates in four decades,” he added.
These discouraged workers factor into any analysis of Trump’s economic policies, and what might happen if he tries to boost growth through major infrastructure investments, tax cuts, and trade protection for manufacturing.
With the headline unemployment rate hovering just below 5 percent for the past eight months, one might question if the labor market is already tight and the economy running at full capacity.
As the economy improves, the Fed is signaling the possibility of future interest rate hikes. Richmond Fed President Jeffrey Lacker suggested interest rates might need to rise faster than expected, in light of the inflationary potential of fiscal stimulus.
Whether Trump can stimulate the economy without triggering inflation hinges on the geographic dimensions of his proposals. Having won with strong support in rural areas, Trump is expected to pursue infrastructure and trade policies that, at least in theory, benefits regions that missed out on growth.
While the metropolitan and coastal regions may be at full employment, there is labor market capacity in interior, Southern U.S., and non-metro areas. If government stimulates regional economies that are under-performing, the investments may encourage workers to return to the labor force.
Thus, many interior regions could absorb an infusion of government spending without a spike in labor costs, since discouraged workers would meet the increased demand. The regions could avoid overheating even as the nation as a whole appears to be at full capacity.
In addition to the regional dimension, there are key distinctions among industries: full employment in professional occupations coincide with slack in manufacturing, transportation, and other sectors that could benefit from Trump’s policies.
In short, stimulus targeted at certain regions or professions could have a reverse hysteresis effect. Many workers in these sectors and regions that dropped out of the workforce during the Great Recession would likely return, supplying the necessary labor to sustain growth without stoking inflation.
So in order to analyze the next administration’s policies, we should pay special attention to the geographic and industrial emphasis. Dynamic regional economic modeling can help understand these nuances.
